A minority-owned entity is defined in Article 10 of the OECD Model Rules as an entity where the UPE owns 30% or less of the ownership interest but the UPE holds the controlling interest. The 30% ownership test takes account of both direct and indirect ownership.
Minority-owned sub-groups (defined as a minority-owned parent entity and its minority-owned subsidiaries) are treated as a separate MNE group.
Therefore, the adjusted covered taxes and Pillar Two GloBE income of the minority-owned sub-group are excluded from the jurisdictional Pillar Two GloBE ETR calculation for the rest of the MNE group and any top-up tax is calculated separately.
This can result in an MNE group having to calculate more than one ETR in a jurisdiction.
Minority-Owned Entities – Example
UPE is the ultimate parent entity of an MNE group within the scope of the Pillar Two GloBE rules. It has a group structure of:
The UPE is located in Country X. It owns 20% of P Co, located in Country Y. P Co owns 90% of S Co 1 and S Co 2, both located in Country A. The remaining 10% ownership of S Co 1 and S Co 2 is owned by the UPE.
The UPE also fully owns two other constituent entities in Country A, S Co 3 and S Co 4.
Let’s assume Pillar Two GloBE income and adjusted covered taxes as:
S Co 1 = Pillar Two GloBE income of 10,000,000 euros and adjusted covered taxes of 2,000,000 euros
S Co 2 = Pillar Two GloBE income of 20,000,000 euros and adjusted covered taxes of 3,000,000 euros
S Co 3 = Pillar Two GloBE income of 15,000,000 euros and adjusted covered taxes of 3,000,000 euros
S Co 4 = Pillar Two GloBE income of 20,000,000 euros and adjusted covered taxes of 2,000,000 euros
P Co is the parent of a minority-owned sub-group as it has 10% direct ownership of S Co 1 and 18% indirect ownership (ie 28% ownership). On the assumption the UPE also has a controlling interest P Co and S Co 1 and S Co 2 would be deemed a minority-owned sub-group.
As such, S Co 1 and S Co 2 would calculate their Pillar Two GloBE ETR separately from the other entities in Country A. In this case, the minority-owned sub-group would have a Pillar Two GloBE ETR of 16.7% (5,000,000/30,000,000).
The other entities in the jurisdiction (assuming neither was an investment entity) would have a jurisdictional ETR of 14.2857%. Therefore, top-up tax may be due for the jurisdiction.
If the minority-owned sub-group was not treated as a separate MNE group for jurisdictional blending purposes, the jurisdictional ETR would be 15.3% and no top-up tax would have been levied.
A minority-owned entity is defined in Article 10 of the OECD Model Rules as an entity where the UPE owns 30% or less of the ownership interest but the UPE holds the controlling interest. The 30% ownership test takes account of both direct and indirect ownership.
A minority-owned entity or a minority -owned sub group is excluded from the standard jurisdictional blending calculation for Pillar Two purposes, and top-up tax is calculated separately.
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